Results Announcement 2017 Media Presentation Digital United - - PowerPoint PPT Presentation

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Results Announcement

2017 Media Presentation

United Digital

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 2

Executive summary

ü Revenue increased by 5,3% to R65,5 billion, underlined by:

• a 4,9% increase in general freight

volumes;

• a 2,4% increase in export coal railed

volumes;

• a 24,3% increase in railed automotive and

container volumes; and

• a record 12,1mt transported for

manganese. ü Operating expenses were contained at a 5,6% increase to R37,9 billion, mainly due to:

• a 10,1% increase in electricity costs; and
• a 7,5% increase in personnel costs.
• Savings of R2,4 billion were achieved

against planned costs. ü EBITDA increased by 5,0% to R27,6 billion, 7,1 times SA’s GDP growth of 0,7%* for the financial year. ü Profit for the year increased to R2,8 billion (2016: R393 million), more than 600% higher than the prior year. ü Gearing at 44,4% and cash interest cover at 2,9 times, are well within loan covenant requirements. ü Borrowings of R17,0 billion raised and R24,9 billion repaid during the year, reflecting the strength of Transnet’s financial position. ü Cash generated from operations after working capital changes increased by 16,4% to R32,8 billion, reflecting our strong cash generating capability.

* The above GDP is calculated on 4 comparative quarters (Apr-Mar 2017 vs Apr-Mar 2016).

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 3

Executive summary (Cont.)

ü Capital investment of R21,4 billion.

• Brings expenditure during the MDS

period to R145 billion.

• 452 locomotives accepted into
• perations since the inception of the

locomotive acquisition contracts in 2014. ü Continued focus on operational improvements, resulting in:

• a 14,9% increase in Group
• perational efficiency;
• a 1,2% increase in energy efficiency;

and

• 242 788MWh regenerated by new

electric locomotives. ü 3,1% of personnel costs invested in

• training. Focus on:
• artisans;
• engineers; and
• engineering technicians.

ü Disabling Injury Frequency Rate (DIFR): 0,69.

• Sixth consecutive year recording a

positive safety performance that

• utperformed the target of 0,75 and

the global benchmark of 1.

• Due to an increase in fatalities

during the year, Transnet is enhancing its focus, efforts and investment in safety management. ü R234 million invested in CSI programmes across South Africa.

• 438 807 individuals from rural and

needy communities, benefitted from Phelophepa healthcare trains’

• utreach programmes.

ü B-BBEE spend: R37,0 billion.

• 103,1% of total measured

procurement spend per the DTI codes.

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 4

5-year review

* Decrease due to value engineering and optimisation efforts. 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017

VOLUMES

General freight (GFB) (mt) 82,6 88,0 90,6 84,0 88,1 Export coal (mt) 69,2 68,1 76,3 72,1 73,8 Export iron ore (mt) 55,9 54,3 59,7 58,1 57,2 Total rail 207,7 210,4 226,6 214,2 219,1 Containers (TPT) ('000 TEUs) 4 237 4 503 4 571 4 366 4 396 Petroleum (Mℓ) 15 882 16 583 17 186 17 426 16 978

FINANCIALS

Revenue 50 194 56 606 61 152 62 167 65 478 EBITDA 21 051 23 639 25 588 26 250 27 557 Capital investment 27 471 31 766 33 565 29 561 21 438 Total assets 203 896 240 073 328 439 356 393 351 635 Total borrowings 73 088 90 444 110 377 134 517 124 780

RATIOS/STATISTICS

EBITDA margin (%) 41,9 41,8 41,8 42,2 42,1 Gearing (%) 44,6 45,9 40,0 43,1 44,4 Cash interest cover (times) 3,7 3,7 3,6 3,1 2,9 Group operational efficiency (%) 3,3 13,8 16,6 15,9 14,9 Real GDP growth (%) 2,2 1,5 1,4 0,6 0,7 *

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 5

Financial performance

• Ac

Actual p performance

• Re

Revenue and volumes

• Ne

Net opera rating expenses

• EB

EBITDA

• De

Depreciat ation, impai airment an and financ finance costs

• Pro

Propert rty, plant and equipment

• To

Total borro rrowings, geari ring and ca cash interest cov cover

• Ab

Abridged c cash sh f flow st statement

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 6

Actual performance

* Absolute variance.

Positive performance in spite of:

• Ongoing economic uncertainty;
• Lower-than anticipated demand; and
• Depressed commodity prices.

GDP growth tracking below expectations: 2013 1st year of MDS 2017 Budget 2017 Actual

March 2017 volumes vs

0,7% (0,1%) 2017 Transnet’s

• perating sector

0,7 2,3 (2,6)

Prior year

Rail Ports Pipelines Weighted group volume performance

+3,2% +5,0%

Depreciation

(11,8%)

Capital investment

(27,5%)

Cash interest cover (times)*

(0,2)

Gearing*

+1,3%

Finance cost

+20,9% +5,3%

Revenue EBITDA

Ma March 2017 vs pr prior ye year

2,8% 0,7%

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 7

Revenue and volumes

Despite the ongoing volatile economic environment, tough competition, lower-than anticipated demand, and depressed commodity prices, revenue increased compared to prior year. Included in revenue is R2,1 billion (2016: R2,0 billion) generated by Transnet’s Africa sales strategy. Transnet supported the industry in price reprieves in excess of R600 million in key sectors to maintain volumes in international markets, due to commodity price slumps.

Revenue (R million) Revenue contribution by core Operating Division (%)

TPL* 6 TPT 15 TNPA* 14 TE 12 TFR** 53

* Regulated entities. ** 69% of TFR revenue is from take or pay customers.

57% of Transnet’s revenue is guaranteed as a result of regulated entities and take or pay contracts.

65 478 62 167 2016 +5,3% 2017

*** Variance % prior year.

Rail volumes (mt) Port containers (‘000 TEUs) Petroleum (mℓ)

219,1 57,2 73,8 88,1 2016 214,2 58,1 72,1 84,0 2017 +2,3% General freight +4,9%*** Export coal +2,4%*** Export iron ore -1,5%*** 4 396 4 366 2017 +0,7% 2016 16 978 17 426

• 2,6%

2016 2017

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 8

Net operating expenses (R million) Net operating expenses contribution by cost element (%) Net operating expenses increased by 5,6%, notwithstanding: § Increase in electricity costs of 10,1%, mainly due to higher electricity tariffs; § Personnel costs increased by 7,5% to R20,8 billion (2016: R19,4 billion). These 2 cost categories represents 65% of net operating expenses. Cost-reduction initiatives implemented throughout the Company resulted in a R1,4 billion saving against planned costs. These initiatives included: § Limiting of overtime; § Reduction in professional and consulting fees; and § Placing a limit on discretionary costs as it relates to travel, accommodation, printing, stationery and telecommunications.

37 921 35 917 +5,6% 2017 2016 55 10 23 6 6

Personnel costs Fuel costs Electricity costs Other operating expenses Material and maintenance

Net operating Expenses: 5,6%

• Electricity costs 10,1%, mainly due to higher electricity tariffs.
• Personnel costs 7,5% to R20,8 billion (2016: R19,4 billion).

Cost-reduction initiatives:

• Moratorium on filling vacancies and limiting overtime.
• Reduced professional and consulting fees.
• Limit discretionary costs (travel, accommodation, printing,

stationery and telecommunications).

Represents

65% of

net

• perating

expenses. R2,4 billion saving against planned costs.

Net operating expenses

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 9

EBITDA contribution by core Operating Division (%)

• EBITDA growth of 5,0%, well in excess of SA’s GDP growth of 0,7% and Transnet’s
• perating sector contracting by 0,1%.
• Regulated entities and take-or-pay contracts represent approximately two-thirds
• f Group EBITDA.

20

• 1

57 13

EBITDA

EBITDA (R million) EBITDA margin (%)

42,1 42,2

• 0,1%

2017 2016

* * Absolute variance.

27 557 26 250 2017 2016 +5,0% 11 TPT 13 TPL** 20 TNPA** TFR 57 TE

• 1

** Regulated entities.

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 10

Depreciation, derecognition and amortisation (R million) Finance costs (R million) Impairment of assets (R million)

13 471 15 275 2016 2017

• 11,8%

2 538 1 524 2017 2016 +66,5% 9 048 7 481 2017 +20,9% 2016

Impairment of assets of R2,5 billion. Due to:

• the impairment of property, plant and equipment, (derailments and index

valuation impairments on port operating assets); and

• impairment of trade and other receivables, mainly PRASA.

Depreciation, impairment and finance costs

Finance costs by 20,9%, in line with expectations. Due to:

• increased cost of borrowings.

Depreciation, derecognition and amortisation of assets by 11,8%. Due to:

• annual useful life adjustments to rolling stock; and
• re-phasing and prioritisation of capital investments to align with lower

market demand.

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 11

Property, plant and equipment (R million) Return on total average assets (%)** PPE by 3,1% to R311,9 billion. Due to: capital investment of R21,4 billion.

• Expansion: R5,2 billion.
• Sustaining: R16,2 billion.
• R145 billion invested in the past five years.
• R229,2 billion (including a R20 billion ‘war chest’ for revenue diversification planned up to

2023/24). Achievements in the past five years include:

• 452 electric and diesel locomotives accepted into operations, in terms of the contracts for

1 319 new locomotives signed in 2014.

• 10 188 wagons produced as part of the wagon build programme.
• R27 billion invested in maintenance and refurbishment of rolling stock infrastructure.
• R16 billion invested in maintenance and refurbishment of rail infrastructure.
• Major acquisitions of R8 billion in port equipment including floating crafts, tipplers, cranes

and other port equipment. Return on total average assets of 4,9% represents an absolute increase of 1,2% compared to the prior year of 3,7%, mainly due to a 28,3% increase in operating profits.

3 905 21 438 +3,1% 2017 311 927 Impairment and other (13 113) Deval. (742) Additions 2016 302 463 (2 024) Borrowing costs Depreciation 3,7 2017 +1,2% 4,9 2016

Property, plant and equipment

* Absolute variance. ** Excluding capital work in progress.

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 12

The gearing ratio by 1,3%. Due to:

• execution of the capital investment programme:

̶ Below the target range of 50,0%. ̶ Well below the triggers in loan covenants. Gearing ratio not expected to exceed the target ratio over the medium term.

• Raised R17,0 billion without government guarantees, and repaid borrowings of R24,9 billion.
• 7,2% decrease in line with capital investment in the current financial year.

Transnet borrows on the strength of its financial position and has maintained an investment grade credit rating although Standard & Poor’s and Moody’s downgraded Transnet in line with the Sovereign on 5 April and 13 June 2017 respectively, as detailed in the next slide. Reflects available capacity to continue investment strategy, aligned to validated demand. Cash interest cover is above the Group’s target range of 2,7 times, and is well above the triggers in loan covenants.

Total borrowings, gearing and cash interest cover

Gearing (%) Total borrowings (R million)

124 780 134 517

• 7,2%

2017 2016 43,1 44,4 2017 2016 +1,3%*

Cash interest cover (times)

* Absolute variance.

2,9 3,1 2017 2016 2,7

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 13

2017 2017 R R million 2016 R million Cash flows from operating activities 25 104 28 572 Cash generated from operations 31 018 27 747 Changes in working capital 1 747 408 Other operating activities (7 661) 417 Cash flows utilised in investing activities (24 689) (34 328) Cash flows from financing activities (7 936) 13 435 Net increase in cash and cash equivalents (7 521) 7 679 Cash and cash equivalents at the beginning of the year 13 943 6 264 Total cash and cash equivalents at the end of the year 6 422 13 943

Bor Borrowi

• wings raised

2017 2017 R R billion Development finance institutions 5,5 Commercial paper and call loans 7,6 Domestic bond issue 1,0 Export credit agencies 2,9 Total 17,0

Credit r rating a as a at 31 M 31 March 2017 2017 Foreign currency Baa2/Negative outlook* BBB-/Negative outlook Local currency Baa2/Negative outlook* BBB/Negative outlook * *

• The stand-alone credit profile (SACP) of Transnet was affirmed at bbb by

Standard & Poor’s (above the Sovereign), reflecting the Company’s strong financial position.

• Transnet successfully renegotiated R29,1 billion of debt during the

financial year to relax loan covenant triggers, in view of the potential rating agencies’ actions.

Abridged cash flow statement

*On 5 April 2017, Standard & Poor’s lowered the Company’s foreign currency rating to BB+ from BBB- and the local currency to BBB- from BBB, both with a negative outlook. On 13 June 2017, Moody’s also lowered the Company’s rating to Baa3 with a negative outlook. Both these actions were due to the rating action on the Sovereign as Transnet is viewed to be closely linked to the Government. Transnet evaluated the potential impact

• n its financial position, liquidity and solvency and expects no significant negative effect on estimates.

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 14

Capital investment

• Ca

Capital inve investment nt analy analysis is

• Ma

Major capi pital de deliveries

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 15

Capital investment (R billion) Capital investment by

• perating segment

Expansion vs replacement Capital investment by commodity

4% 2% 8% 3% 3% 2% 4% Manganese Break bulk Piped products Maritime containers Iron ore Bulk Coal General freight 4% 8% 15% 73% Engineering and other Pipelines Ports Rail 76% 24% Replacement R16,2 billion. Expansion R5,2 billion. +14,6% 27,5 2013 33,6 2012 29,6 22,3 2015 2016

• 27,5%

31,8 2014 21,4 2017

The economic slowdown has resulted in Transnet optimising its expansionary capital investment for the year.

* CAGR to 2015.

*

Capital investment analysis

74%

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 16

* Cumulative since inception of contracts.

As Asset t type pe 2017 2017 Cu Cumulative*

Locomotives 233 class 44 diesel 103 117 359 class 22 electric 80 80 95 class 20E electric 95 60 class 43 diesel 60 100 class 21E electric 100 Total for the 1 319 locomotive contracts 452 232 class 45 diesel - two locomotives have been delivered and are undergoing acceptance testing. 240 class 23 electric - two locomotives have been delivered and are undergoing acceptance testing. Wagons GFB and export coal 100 10 188

As Asset t type pe 2017

Rail refurbishment: infrastructure Turnouts (units) 91 Universals (units) 125 Rails (kilometers) 163 Ballast (kilometers screened) 176 Sleepers (units) 168 712

As Asset t type pe St Stag age of f completion

Pipeline infrastructure New Multi-Product Pipeline phase 1 96%

• The NMPP 24” main pipeline, 16” inland pipelines as well as the pump stations have been

fully commissioned and are operational, having transported 15 billion litres of diesel from Durban to the inland region since commissioning in January 2012.

• The multi-product operation of the NMPP trunkline via the implementation of tightlining

at the coastal terminal is expected to be operational by the end of November 2017.

As Asset t type pe 2017 2017

Port equipment Haulers 14 61 ton multi-purpose trailers 4 Hazmat trailers 3 Empty container handlers 3 Bulldozer 1 Front-end loader 1 40 ton skips 14 Skid-steer loader 3 Workshop forklift 1 Tugs 4

Major capital deliveries

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 17

Volumes and operations

• Ra

Rail – Ex Export coal

• Ra

Rail – Ex Export iron ore

• Ra

Rail – Ge General freight business (GF GFB)

• Ra

Rail - Ma Manga ganese

• Po

Port rts containers rs

• Pi

Pipelines

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 18

Export coal volumes:

• by 2,4% from prior year,

in spite of:

• low commodity prices in quarter 1 & 2;
• reduced demand from customers;
• adverse weather conditions in quarter 4; and
• service execution challenges.

Future volumes are supported by 74,0mtpa take or pay contracts and an additional 7,0mtpa relating to Waterberg coal, which was signed subsequent to year end. Performance improvements included:

• Close customer liaison on low stockpiles and finding

alternative mines.

• Strategic deployment of security to respond to cable

theft (incl. engaging communities in high risk areas).

• Improved locomotive supply and deployment on the

coal line.

• Cycle time improvement initiatives, including

implementing lean six sigma projects.

• Positive on-time performance, mainly due to enhanced

collaboration among supply chain partners:

• On-time arrivals (OTA) improved by 142,7%; and
• On-time departures (OTD) improved by 7,8%.

VOLUMES (mt) PRODUCTIVITY AND EFFICIENCY RAIL – EXPORT COAL

Cycle time (hours)

2016 76,3 68,1 73,8 72,1 2017 2013 2012 69,2 2015 +2,4% 2014 67,7

Volumes and operations

2017 63,7 64,6 2016

• 1%

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 19

VOLUMES (mt) PRODUCTIVITY AND EFFICIENCY RAIL – EXPORT IRON ORE

Cycle time (hours)

2017 0% 90,3 2016 90,1 2014 54,3 59,7 55,9 52,3 58,1 2015

• 1,5%

57,2 2012 2017 2016 2013

Volumes and operations

Volumes and operations (Cont.)

Export iron ore volumes:

• by 1,5% compared to the prior year.

Volume losses recorded as follows:

• product availability challenges (mining business

rescue & other product availability losses);

• tippler breakdown; and
• service execution.

Future volumes are supported by 61,0mtpa take

• r pay contracts.

Performance improvements included:

• Customer discussions on product availability

challenges, including the outcome of mining business rescue plans.

• Tippler repair & volume recovery thereof.
• Implementing lean six sigma projects.
• Positive on-time performance, mainly due to

enhanced collaboration among supply chain partners:

• OTA improved by 230,4%.
• OTD improved by 3 798,2%.

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 20

VOLUMES (mt) PRODUCTIVITY AND EFFICIENCY RAIL – GENERAL FREIGHT BUSINESS (GFB)

Wagon turnaround time (days)

+4,9% 81,0 88,1 2013 2014 2012 82,6 2017 84,0 90,6 88,0 2015 2016

Volumes and operations (Cont.)

2016 10,7 11,8 2017

• 9%

GFB volume performance:

• by 4,9% above the prior year,

in spite of:

• service execution challenges;
• market conditions;
• customer cancellations - (stockpile/plant

breakdowns);

• wagon shortages; and
• locomotive failures.

Future volumes are supported by 11,0mtpa take

• r pay contracts for magnetite.

Recovery initiatives included:

• Close customer liaison for alternative volume
• pportunities.
• Implementing lean six sigma projects.
• Implementation of recovery initiatives.
• Deployment of new locomotives introduced.
• Short interval management of operations.
• Positive on-time performance, mainly due to

enhanced collaboration among supply chain partners:

• OTA improved by 171,6%.
• OTD improved by 419,0%.

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 21

VOLUMES (mt) PRODUCTIVITY AND EFFICIENCY RAIL – MANGANESE

Manganese volume performance:

• by 17,5% from the prior year.
• A record 12,1mt transported for manganese

attributed to world-class execution by our teams; and creation of new loading/offloading points. Future volumes are supported by 11,7mtpa take or pay contracts for manganese.

Volumes and operations (Cont.)

Cycle time (hours)

8,3 2012 2013 8,7 7,6 +17,5% 10,3 12,1 10,7 2016 2017 2014 2015 200,9 162,3

• 19%

2016 2017

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 22

Ship turnaround time (hours)

VOLUMES (‘000 TEUs) PRODUCTIVITY AND EFFICIENCY PORTS CONTAINERS

The current year’s performance:

• 0,7% above the prior year,

in spite of:

• continued subdued domestic and global

demand; and

• perational challenges - mainly at Durban Pier 1.

Port efficiency improvement included:

• Straddle carrier and crane maintenance;
• Refurbishment of straddle carriers to improve

reliability;

• Hauler operation to reduce straddle carrier

demand in the medium to long term;

• Straddle pooling at the Durban north quay to

improve usage of equipment;

• Up-skilling and re-training of operators; and
• Improved labour force stability and productivity.

23 67 74 17 24 24 55 56 16 26 55 51 Ngqura Richards Bay East London Port Elizabeth Cape Town Durban Pier 2* Durban Pier 1*

• 8%

+8% +4%

• 18%
• 24%

4 396 4 366 4 571 4 503 4 237 4 305 +0,7% 2017 2016 2015 2014 2013 2012 2017 2016

Volumes and operations (Cont.)

* Reported together in the prior year (2016: 46 hours).

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 23

PRODUCTIVITY AND EFFICIENCY PORTS CONTAINERS

Train turnaround time (hours)

1,1 2,6 2,9 3,8 1,0 3,5 2,9

• 2%

+32%

• 3%

Ngqura Cape Town Durban Pier 2 Durban Pier 1 66,0 54,0 63,0 53,0 63,0 53,0 55,5 45,0

• 5%
• 2%
• 12%
• 15%

Ngqura Cape Town Durban Pier 2 Durban Pier 1

Container moves per ship working hour

2017 2016 2017 2016

• Train turnaround times at Durban Pier 2 were

affected by long train dwell times in Kings Rest Yard.

• Lean six sigma projects have been

implemented to address this situation.

• Container moves per ship working hour in

Cape Town and Ngqura were stable.

• Lean six sigma projects were launched to

improve Durban Piers 1 and 2.

Volumes and operations (Cont.)

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 24

DJP + NMPP capacity utilisation (Mℓ/Week)

VOLUMES (bℓ) PRODUCTIVITY AND EFFICIENCY PIPELINES

Operating cost per Mℓ.km (Nominal R/Mℓ.km) Petroleum volume performance:

• 2,6% below the prior year,

Due to:

• reduced demand from customers.

Planned vs actual delivery time (% of deliverables within 2 hours of plan)

123 133 120 99 89 2017 2016 2015 2014 2013

• 8%

81,0 2017

0%

2014 85,6 84,0 2015 85,7 2016

Ordered vs delivered volumes (% of deliveries within 5% of

• rder)

96 98 100 99 2014

• 2%

2015 2016 2017 116,0 2016 2017

+5%

110,0

• 2,6%

2017 17,0 2016 17,4 2015 17,2 2014 16,6 2013 15,9 2012 16,7

• Efficiency improvements were noted between

planned vs actual delivery times.

• Pipeline operating costs per Ml.km improved

compared to the prior year, reflecting a saving of 8,0 %.

Volumes and operations (Cont.)

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 25

Sustainable development

• utcomes

Sa Safety • Hu Human resources • Co Community d development

• In

Industri rial ca capability building and and trans ansfo format atio ion n • En Enterprise development initiatives • En Environmental stewardship •

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 26

Employee fatalities (number)

Despite considerable efforts to improve safety, the Company regrets to report 15 employee fatalities in the current year, compared to 8 in the prior year. These were due to vehicle and train accidents as well as non-adherence to standard operating procedures. Transnet’s leadership has heightened its oversight role of safety performance in more visible ways through site visits, ensuring various levels of safety performance are clearly understood and adhered to. The Company continues to analyse and review its current safety approaches and efficiency, while proactively striving towards zero

• harm. Numerous vehicle safety, driver awareness and other safety

campaigns have been introduced to further embed a safety culture within Transnet’s operations.

Disabling injury frequency rate (DIFR)

DIFR performance of 0,69 (target: 0,75)

• Sixth consecutive year recording a DIFR ratio below 0,75 due to

continued focus and investment in safety. The Company continues to monitor and mitigate, as best possible, both operational and behavioural risks that are inherent in Transnet’s work environment. 2017 2016 0,69 0,69 2015 0,69 0,69 2014 15 8 4 7 2015 2017 2016 2014

Safety – the sixth consecutive year recording a DIFR ratio below 0,75

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 27

*Including contract employees.

Exceeded target for black employees. Female representation is growing steadily despite significant challenges in an operations-heavy environment at semi and unskilled levels. Invested 3,1% of the labour cost bill on skills development initiatives (focusing on

• perational and technical training).

Transnet achieved its targets for 2017 in the most critical skills development areas, that were the focus for the year. Schools of Excellence in Transnet continued to be a great flagship of the Transnet Academy’s delivery.

58 828

Transnet employees* A representative workforce

Designated categories Target % Actual % 2017 2017 Black 80,0 85,2 Females at GLT 50,0 50,0 Females at extended GLT 50,0 44,4 Females below extended GLT 40,0 27,7 PWD’s 3,0 2,3

Skills development, capacity building and job creation

Key performance Indicator Unit of measure Annual Target Actual 2017 Training spend % of personnel costs Rand million ≥ 3,0 3,1 746 Engineering trainees Number of learners ≥ 171 173 Technician trainees Number of learners ≥ 220 229 Artisan trainees Number of learners ≥ 250 250 Sector specific trainees Number of learners ≥ 2 200 1 813

Human resources – employment, transformation, skills development

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 28

Heritage preservation

Managing Transnet heritage assets for future generations.

§ The Transnet Transport Museum, located in George, has received a certificate of excellence from Trip Advisor for the third consecutive year.

Grants and donations

§ The third and final instalment of R250 000 was paid to Batswana High School towards the building of four classrooms. § R855 000 donated to NGO Afrika Tikkun for youth skills development and employment assistance.

Education

Looks after orphaned and vulnerable youth in communities where Transnet has large projects or

• perations.

§ 39 matric learners from the programme achieved 100% pass-rate with 40 distinctions. § Mobile libraries procured and delivered much needed educational material to three schools.

Employee volunteer programme (EVP) and socio-economic infrastructure development (SEID)

§ EVP projects: 3 216 employees volunteered during the year in mega projects across the country. § SEID: The contractor for the construction of Idondotha Community Centre in KZN has been appointed. § The donation of land was approved by Msunduzi Municipality for the construction

• f the Ezinkatheni Community

Centre in 2017.

Rural and farm schools sports development

§ Two multi-purpose sports complexes completed in Empangeni. § Sports apparel and equipment donated to 194 schools. § 100 000 learners participated in sporting talent events. § 1 200 graduate participants in Provincial/National sporting codes. § The School of Excellence achieved a 100% matric pass rate for the 2016 calendar year.

Healthcare

Access to primary health care services for rural communities. Two Phelophepa health care trains.

§ 173 016 patients assisted

• n-board.

§ 438 807 individuals assisted through outreach. § 1 624 medical student placements. § Teenage Health programme reached 9 105 girls and 2 849 boys.

Community development Transnet Foundation invested R234 million

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 29

*TMPS – Total measurable procurement spend.

Broad-based black economic empowerment (B-BBEE) and local supplier industry development Transnet is currently rated as a

Level 2 B-BBEE contributor

Supplier development (SD) programme (R million)

Total contract value 134,365 +12% 119,886 2016 2017 +11% 62,564 Committed SD obligation 56,608 Actual SD obligation delivered +39% 23,237 32,246 8 5 8 7 34 30 13 10 2016 2017 +3% +1% +3% +4% Black woman owned Qualifying small enterprises Black owned Emerging enterprises 103 101 105 94 88 80 75 65 59 2014 2016 2017 2015 +7% 2013 2012 2011 2010 2009

% B-BBEE spend of TMPS* B-BBEE categories spend % of TMPS*

Industrial capability building and transformation

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 30

Enterprise development initiatives

Container Bakeries

R29,9 million spend since inception in 2015. Project completed in the year.

• Partnership between

Transnet and Umnyakazo to empower 100% rural black women-owned co-

• peratives to run and
• perate container

bakeries in their EC, KZN and NW communities.

• Collaboration between

Transnet, Anglo American and Small Enterprise Finance Agency.

• R150 million for financial

assistance and R15 million for non-financial assistance.

• Aims to nurture current

black-owned Transnet suppliers to meet contractual obligations and grow their businesses sustainably.

• The Transnet –

Productivity SA initiative provides operational support to qualifying black-owned SMME suppliers to Transnet.

• Helps small suppliers

meet Transnet demand.

• Addresses challenges of
• perational

performance that may affect product or service delivery.

• A non-financial support

service aimed at incubating 100% black-

• wned SMMEs, which

can meet Transnet’s supply chain needs.

• The two incubation

centres are currently running in the Richards Bay (KwaZulu-Natal), and Port Elizabeth (Eastern Cape) areas.

Transnet Design and Innovation Challenge and Research Centre

R160 million spend since inception in 2014. R106 million remaining expected spend until 2021.

• Partnership between

Transnet, SABS, JASA and Wits Transnet Centre for Systems Engineering.

• The initiative aims to

stimulate the entry of black entrepreneurs, particularly black youth, into high-tech sectors through Innovation and R&D facilities.

• Provides mentoring,

design capability, funding, incubation, and access to markets.

Transnet – Shanduka Black Umbrella Incubation

Transnet has spent R30 million since inception in 2013. The project has been completed in the current year.

Transnet – Productivity SA

R18 million spend since inception in 2014. To be completed in 2019.

Enterprise Development Hubs

R27 million spend since inception in 2014. R12 million expected spend until 2019.

Godisa Fund

R55 million spend since inception in 2014. To be completed in 2023.

Transnet SMME Business Toolkits

R8 million spend since inception in 2015. Project completed.

• Transnet partnership with

SAGE Pastel.

• Develop 1 250 SMME

business toolkits, covering all key areas of SMME business management.

• The Enterprise

Development Hub creates an enabling environment for SMMEs to access products and services offered by Provincial and National Economic Development Institutions.

• Four ED Hubs in
• peration in

Johannesburg, Saldanha, De Aar and Mdantsane.

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 31

• A strategic partnership

between Transnet and Gauteng Enterprise Propeller.

• Aims to provide financial

and non-financial assistance to ensure SMMEs benefit from Transnet’s ED programme.

• Funding for BO, BWO,

BYO, BDO SMMEs in the Cape Region (WC, NC & EC).

• Provides guarantees for

large contracts and provide accessible funding to SMMEs.

• Innovation and

Entrepreneurship Programme for University Students.

• Provides mentorship

and training to youth to develop innovative products and services.

• Partnership between

Transnet and Furntech.

• Centre of Excellence for

the furniture industry.

• Offers business

incubation and/or skills development in furniture manufacturing.

• Focused specifically on

black people living with disabilities.

• The GIBS Enterprise

Development Academy, aims to empower new and existing growth-

• riented entrepreneurs

through business education, mentorship.

• A partnership between

Transnet and AIDC.

• Aims to improve

Transnet supplier’s in manufacturing and quality standards.

• Lean six sigma training.

Automotive Industry Development Centre (AIDC) Rapid Process Improvement Programme

R1,9 million spend since inception in 2013. The project has been completed.

Transnet – GIBS Supplier Development Programme

R13 million spend since inception in 2014. R9,7 million expected spend until 2018.

Furniture Manufacturing Incubation

R18 million spend since inception in 2014. To be completed in 2018.

Transnet ‘BE BOLD’ Programme

R1,4 million spend in the current year. To be completed in 2018.

Phuhliso Enterprise and Supplier Development Fund

R50 million spend since inception and R50 million expected spend until completion.

Itireleng Fund

R24 million spend since inception in 2013. The project has been completed in the current year.

Enterprise development initiatives

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 32

ENERGY CONSUMPTION & EFFICIENCY CARBON EMISSIONS

Environmental stewardship

Total electricity consumption (GW/h)

ENERGY CONSUMPTION & EFFICIENCY CARBON EMISSIONS

Total fuel consumption (million litres) Carbon emissions intensity (kgCO2e/ton) Carbon emissions (mtCO2e) Total energy efficiency (ton/GJ) Traction electricity efficiency (gtk/kWh)

3 263 3 208

• 1,7%

2017 2016

• 4,3%

2017 65,4 2016 68,3 +1,2% 2017 18,9 2016 18,7

• 2,3%

2017 10,3 2016 10,6

• 1,0%

2017 3,95 2016 3,99 239 232 +3,0% 2017 2016

242 788MWh electricity regenerated by the new 15E, 19E, 20E and 21E locomotives. Freight commodities market share gains from road hauliers in the year resulted in carbon emissions savings to the South African transport sector of 637 152 tC02e.

tC02e - tons of carbon dioxide equivalent MWh - Megawatt hours GJ - Gigajoule Gtk - gross ton km

TRANSNET AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017 33

Conclusion

Sh Shor

• rt- to

to medium-te term out

• utlook
• ok

ü Continue to respond to changing market conditions in an agile way through bold and resilient cash flow management interventions driven by the Group Leadership Team and the Board. ü MDS being repositioned to create capacity ahead of validated demand in the short to medium term. ü Aim to achieve capital spend of R229,2 billion (including R20 billion allocated to mergers and acquisitions) over the MDS period and between R340 billion and R380 billion to be invested over the next 10 years, depending on demand, to increase capacity across all commodities and sectors. ü Focus on: diversified revenue streams, customer-centric service ethos, cost management, and productivity.

Lo Long-te term out

• utlook
• ok

ü Management adopting the Transnet 4.0 vision to accelerate MDS growth in the 4th Industrial Revolution. ü The future is digital and the Company will use the latest technology intelligently, to implement real-time customer solutions and new product offerings. ü Establish infrastructure networks for the transmission of natural gas. ü Accelerate growth in property, spatial development and maritime connectivity. ü Fundamentally reinventing Transnet’s existing business model and operational philosophy:

• Extend Transnet’s footprint in Africa, the Middle East and South Asia.
• Become a fully integrated logistics service provider, with end-to-end solutions.
• Establish an advanced manufacturing capability as an OEM for Africa.

1% 5% 5% 6% 4% 10% 7% 49% 13% Break-bulk R1,9 billion Piped products R10,3 billion Bulk other R9,9 billion Manganese R12,5 billion Iron ore R8,9 billion Maritime containers R21,5 billion Coal R14,3 billion General freight R102,4 billion Automotive and other R27,5 billion

Se Seven-yea year capital in investment by by com

• mmod
• dity

y (%) (%) * Through dynamism, financial agility, operational unity and perpetual innovation, Transnet achieved a 5,0% growth in EBITDA (despite providing in excess of R600 million in price reprieves), a 16,4% increase in cash generated from operations after working capital changes, and a 14,9% improvement in operational efficiency.

*Excludes R20 billion allocated to mergers and acquisitions.

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